High-Tech: A Product, a Process, or Both?

There is no universally accepted definition of "high-tech," nor
is there a standard list of industries considered to be high-tech. Today nearly
every industry contains some element of technology, and even the most technologically
intensive industry will include low-tech elements.

Nevertheless, several groups have developed lists of industries they consider
high-tech using U.S. Standard Industrial Classifications (SIC). The breadth
of these lists depends on two factors: 1) the goals of the organization and
its customers and 2) whether the organization ascribes to the argument that
only industries that produce technology can be considered high-tech or to
the argument that industries that use advanced technology processes can also
be categorized as high-tech.

Any industry-based definitions of high-tech will be imperfect, but none
of the definitions discussed here should be considered incorrect. The important
factor to consider is the perspective from which any list is derived.

Most high-tech industry classifications have common elements, yet may vary
significantly in scope. Let's consider four classifications of high-tech industries
developed by the following respected and often quoted organizations (see Table
1): the American Electronics Association (AEA), RFA (formerly Regional Financial
Associates), One Source Information Services Inc. (formerly Corp Tech) and
the U.S. Bureau of Labor Statistics (BLS).

Click on table to see larger version.

The different missions of these four organizations influence how they define
high-tech. AEA is a trade association made up of mostly electronics and information
technology companies. Its members generally produce technology and ascribe
to the limited definition of high-tech based only on the nature of an industry's
product rather than its process. RFA is a national consulting firm. Its clients
include builders and contractors, banks, insurance companies, financial services
firms and government. The industries with the greatest growth potential and
those reflective of their clients' interests are included in RFA's list of
high-tech industries. While both AEA and RFA have narrowly defined high-tech,
One Source and BLS use broader definitions that include industries with both
high-tech products and processes.

One Source gathers and sells corporate information on technology firms for
use in sales and marketing. As it has built its database of firms, One Source
has expanded its list of what should be considered a high-tech industry. BLS
is a federal agency responsible for collecting and analyzing data on the national
labor force. It has defined those industries with the highest concentration
of technology-based occupations, such as scientists and engineers, as high-tech
industries.

Combining these four definitions, Figure 1 compares high-technology employment
growth in Indiana and the United States.

Using 10 years of BLS data (1989 to 1999), we can illustrate how different
definitions of high-tech can show vastly different results (see Table 2 and
Figure 2). The data are sorted at the three-digit SIC level.

AEA's
list is the most restrictive of the four classifications. Absent from the
list are areas such as drug manufacturing, robotics, and research and testing
operations. Using the AEA classification, total U.S. high-tech employment
grew 24% since 1989, while Indiana sustained a loss of 8% (approximately 7,000
jobs).

The AEA results for Indiana, however, clearly illustrate the vagaries of high-tech
classifications. AEA's results are largely dictated by employment changes
in Indiana's household audio and video equipment sector. This is in part due
to global markets drawing plants to less-expensive labor markets. However,
in Indiana, reclassification of companies had a much greater impact during
the period being reported. The largest reclassification occurred in 1995 when
Delphi Delco Electronics Systems in Kokomo was moved out of electronics and
into motor vehicles by BLS. Delphi Delco-Kokomo produces the Electronic Powertrain
Control Module, which incorporates state-of-the-art computer technology to
measure and control the engine and automatic transmission. With this
reclassification, the approximately 9,500 high-skill jobs designing and producing
automotive electronics were no longer reflected in the AEA results. Without
this reclassification, Indiana would have added 2,582 high-tech jobs for a
growth rate of 3.2% versus the decline shown in the AEA study. According to
AEA, Indiana's strongest high-tech industry, in terms of growth, is computer
and data processing services.

The Consulting Group: RFA

RFA's high-tech sectors are similar to those selected by AEA. However, RFA
does not include household audio and video equipment or telephone communications,
but adds drugs and research and testing services.

Under RFA's classification, Indiana's high-tech employment shows a net increase
of more than 6,000 jobs since 1989, whereas AEA showed a net loss of approximately
the same amount for the same time period. According to RFA, Indiana high-technology
sector employment has increased every year except one since 1995. By changing
just two industries, RFA data paint a far rosier picture of Indiana's high-tech
economy than AEA data.

Information Provider: One Source

Unlike the short lists compiled by AEA and RFA, the One Source list classifies
48 sectors as high-tech. Major additions include a number of manufacturing
industries, such as metal products and transportation equipment, and several
service industries.
Using a list with such a diverse collection of industries, high-tech in Indiana
takes on a much different appearance. Under the One Source definition, Indiana
has a greater share of employment in high-tech sectors than the United States
and an employment growth rate nearly equal to the U.S. rate. Indiana does
best in the manufacturing sectors, showing gains in 22 of 33 sectors with
a net increase of 31,287 jobs between 1989 and 1999. Motor vehicle and equipment
employment represents the largest share of employment growth (includes firms
previously coded under electronics).

Even excluding manufacturing, Indiana still had a net gain of 15,364 jobs,
mostly concentrated in computer and data processing services and business
services. Both the engineering and architectural services and management and
public relations sectors showed strong growth, gaining more than 11,500 jobs.

The Research Group: BLS

As with One Source, Indiana does quite well using the BLS sectors. Since
1989, Indiana has seen a net gain of more than 40,000 jobs and a growth rate
of 17%, exceeding the U.S. rate of 15%. Indiana accounts for 2.6% of national
employment for these sectors. High-tech service industries are fastest-growing
in Indiana and the nation (see Figure 3).

BLS has further refined its high-tech industry definition by separating
sectors into two groups. Those industries with a high concentration of research-oriented
occupations are labeled intensive, while those with a lower concentration
are considered non-intensive. This two-tiered structure illustrates Indiana's
strength in industries using high-tech processes over those producing high
technology. Like Indiana, the nation has grown faster in non-intensive industries
(18%), but has also performed well in the intensive sectors (13%) since 1989.
In Indiana, the motor vehicle industry is the powerhouse of the non-intensive
category, while computer and data processing services are the strongest intensive
high-tech industries.

The differences shown here illustrate why knowing how data are defined is
essential to understanding what the data mean. Once again, those wishing for
a simple answer will be frustrated. It is not the data that have failed them,
but the reality of a complex system (the economy) and the human factor that
must determine how to best reflect that system using data.